In the Times yesterday, Daniel Finkelstein pointed out that most of the squeeze on public spending has yet to happen: "The big battle is only just about to begin" he said.
He's right. OBR data show that since 2009-10, total spending spending fell by only 3.5 percentage points of GDP to 43.5%. But it's projected to drop by another 5.5 points by 2018-19. That would take the share of public spending in GDP to its lowest level since 2001-02, and lower than anything we saw in the Thatcher years.
This raises a question: why hasn't the government made more of a case for a smaller state, preferring instead to stress the need for fiscal austerity? It's failure to do so has drawn criticism from both right and left. Allister Heath has asked where Osborne's vision is, and Phil has written:
The deficit (which does need sorting) has been a policy drawbridge across which Osborne and Dave have marched a phalanx of ideologically-driven cuts to public spending.
To an economist this seems an inversion of logic. The claim "we need to cut spending to reduce the deficit" verges on the nonsensical: see Simon Wren-Lewis, passim. But the claim "a smaller share of government spending in GDP would be a good thing" is if not correct then at least more intelligent than deficit fetishism. You can point to evidence that smaller government promotes economic growth and perhaps even happiness. You could argue, McCloskey-style, that a smaller state and bigger market sector would eventually promote bourgeois virtues. And you could, following Vito Tanzi (pdf), contend that there's no link between public spending and various measures of well-being: Japan and Korea, for example, combine small states with reasonable income equality, and there are good reasons for leftists to favour a smaller state.
This poses the question: why does Osborne - and the coalition generally - use bad arguments for cutting public spending when better ones are available?
One possibility is that the UK has a social democratic culture, so explicit arguments for a smaller state won't wash: the Overton window doesn't exclude merely leftist ideas. This, though, runs into the problem that Osborne merely plans to take the share of public spending in GDP to slightly above the level it was under the first four years of Gordon Brown's chancellorship. That's hardly swivel-eyed minimal statism.
Here, then, are three other possibilities:
- The secular stagnation hypothesis might be right. The private sector might have been vibrant enough to fill the space left by a shrinking public sector in the past, but it's not now.
- Politicians have lost the ability to argue about values such as the size of the state, and prefer to hide behind pseudo-managerialist gibber about the "necessity" for cuts. An appeal to the deficit bogeyman fits this preference better than the ideal of a smaller state.
- We can't rely upon efficiency gains to offset spending cuts. Danny calls for "relentless pressure on the public sector to provide the same services for far less money." But this pressure might fail because of counter-pressure from bureaucratic capture or Baumol's disease, or simply because of bounded managerial ability. If so, a smaller state means worse public services - and that'll take some justifying.
I'm not sure what the answer is here. But I'm pretty sure that there's a paradox here, that bad arguments for shrinking the state are preferred to less bad ones.